Kim Slowey\u00a0| Construction Dive | April 26, 2016<\/p>\n
Getting paid in the private construction business \u2014\u00a0whether it involves\u00a0a particularly evasive general contractor or an owner who\u2019s in a tight financial spot \u2014\u00a0can be a challenge. Fortunately, no matter the size of their legal budgets, contractors have an alternative to waiting out a check indefinitely, and it\u2019s called a mechanic\u2019s lien<\/a>.<\/p>\n Mechanic\u2019s liens, usually the collection tool of last resort, protect a contractor\u2019s interests by creating an encumbrance, or monetary claim, on the project property, be it commercial or residential. The lien is public record, and, much like a loan on a vehicle or a mortgage, it must be satisfied \u2014\u00a0paid\u2014\u00a0before the owner can provide clear title to a buyer or another lender in case of a refinance. Unlike a home or auto loan, however, mechanic\u2019s liens<\/a> exist specifically to ensure that those who provide services and materials to a construction project are paid. \u00a0<\/em><\/p>\n In most states, the right for contractors to file a mechanic\u2019s lien<\/a> is not automatic, as there are some legal hurdles to jump. Usually within a certain timeframe, contractor must let the owner know in writing that they are\u00a0providing services to the project, and notice has to be given in a way that can be proven down the road \u2014 such as\u00a0certified mail, overnight delivery or hand delivery with a signed receipt.<\/p>\n If the owner or general contractor makes timely payments throughout the course of a job, then that\u2019s as far into the mechanic\u2019s lien process they will get. If not, then welcome to the next round of paperwork. If the payments stop coming, and a contractor has met the\u00a0notice requirements, it\u2019s time to consider filing a mechanic\u2019s lien.<\/p>\n If a contractor files a lien, the process still isn\u2019t complete, though. Most states do not allow a mechanic\u2019s lien to just hang out in the public record forever. At some point, the contractor who filed the lien has to pull the trigger and foreclose on the lien, forcing the sale of the property in order to ultimately get paid.<\/p>\n While the mechanic\u2019s lien option is available in every U.S. state, each has its own variations on the process, so we took a general look at the laws in California, Florida and New York.<\/p>\n Attorney Mark Johnson, partner at Snell & Wilmer in Los Angeles, said that since the California mechanic\u2019s lien laws<\/a> underwent an overhaul in 2012, it\u2019s slightly\u00a0easier for contractors to perfect, or record and enforce, mechanic\u2019s liens.<\/p>\n The mechanic\u2019s lien process in California begins with a preliminary notice, Johnson said. “The preliminary notice attaches from the time you serve the notice,”\u00a0he said, limiting lien rights to work performed after the notice is filed. “Let\u2019s say you\u2019ve worked on a job 100 days (without filing a preliminary notice). You have no rights to a mechanic\u2019s lien for (work performed) the first 100 days, but you do have rights after you serve the notice.”<\/p>\n If contractors don\u2019t serve a notice at all, Johnson said, they have no mechanic\u2019s lien rights. A contractor also has no lien rights, he said, if not properly licensed for the trade they are working in.<\/p>\n Johnson said that once a contractor has filed a preliminary notice, “prudent”\u00a0owners require lien releases be executed with every payment. A lien release is a signed statement from the contractor that it has been paid through a certain date, generally releasing the owner from any payment obligation for work performed before that date.<\/p>\n Nevertheless, even if a contractor meets all of the\u00a0notice and filing obligations, Johnson said, that doesn\u2019t always mean smooth sailing through the foreclosure process. For example, he said, the most common owner defense to foreclosure is a claim that the contractor\u2019s work was defective in some way. Still, Johnson said, it\u2019s normally the preliminary notice requirements and subsequent filing requirements that prevent a contractor from completing a successful lien action. “The procedural hiccups are the biggest problems that mechanic\u2019s lien claimants have,”\u00a0he said.<\/p>\n Johnson said that while contractors of every size can have issues meeting the statutory lien requirements, smaller contractors\u00a0who don\u2019t have the internal staff to cover their legal bases are the ones who will most likely miss out on the protections liens can offer.<\/p>\n Edward C. Lohrer with Becker & Poliakoff, P.A. in Ft. Lauderdale, FL, said the lien laws in Florida<\/a> are “broad and expansive,”\u00a0but, aside from minor “tweaks”\u00a0with each legislative session, the process has remained largely the same for many years.<\/p>\n In Florida, Lohrer said there are no significant notice requirements for a contractor in “direct privity”\u00a0with the owner, meaning that there is a direct contract with the owner. “Your most important deadline,”\u00a0he said, “is you have 90 days from the date you last performed work on the project to record your lien.”\u00a0If the contractor does not record the lien within that window of time, “you lose your lien rights altogether,” he added.<\/p>\n If\u00a0a contractor does not have a direct contract with the owner, such as a subcontractor, he said,\u00a0the contractor must file a Notice to Owner within 45 days of starting work or lose his lien rights. “Depending\u00a0on how big the project is,”\u00a0Lohrer said, “there could be dozens of different people doing work, all of them with potential lien rights.”<\/p>\n The same 90-day lien recording deadline applies to this tier of contractors as well, and, like most states with preliminary notice requirements, notices must be sent or served in such a way that provides proof the owner received it. “The lien law is strict compliance, and, if you mess up, you lose your lien rights.”<\/p>\n In contrast, attorney Andrew Richards of Kaufman Dolowich & Voluck, LLPin New York said the state of\u00a0New York has no preliminary notice requirements that must be met in order to file a mechanic\u2019s lien<\/a>.<\/p>\n “You have eight months to file a mechanics lien from the last day you perform labor or supply materials,”\u00a0he said. That generous timeframe shrinks to four months for residential projects. “You also have to serve notice on the owner, commercial or residential,”\u00a0he said, “either five days before filing a lien or within 30 days thereafter.”<\/p>\n Once a mechanic\u2019s lien is filed, Richards said, the contractor has one year to foreclose on the lien. However, it can be extended for additional one-year periods before the contractor is required to foreclose. In Florida, that deadline is also a year unless the lien is contested, but California contractors must act to enforce their liens within 90 days.<\/p>\n In the cases of subcontractors who file liens, Richards said, the owner is required to withhold the amount specified in the lien from the general contractor. “If they don\u2019t,”\u00a0he said, “(the owner) could have to pay the sub later on again.”<\/p>\n In lieu of the owner withholding payment, Richards said, the general contractor can put up a bond for 110% of the disputed amount.<\/p>\n A major obstacle to contractors availing themselves of their lien rights, however, is not a legal one.\u00a0Many contractors, experts noted, are hesitant to file a lien and potentially ruin a business relationship.<\/p>\n “I think that there is a lot of hesitation,”\u00a0Lohrer said, “especially if there\u2019s repeat business or there\u2019s a long-term relationship because, of course, you could risk upsetting the owner. At the same time…<\/p>\n To finish reading this article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Steps to filing a lien<\/h2>\n
Variations between states<\/h2>\n
California<\/h2>\n
Florida<\/h2>\n
New York<\/h2>\n
Risk of ruining a relationship<\/h2>\n